Government points finger at foreign factors for Turkish Lira’s plunge

At around 3.00 a.m. on May 23 the Turkish Lira suddenly fell to 4.83 against the U.S. dollar, at a time when not only Turkey but also European and American markets were asleep. The lira had already hit a low when the stock exchange closed at 17.00 p.m. on May 22 at 4.67. With the latest declines the lira’s devaluation against the dollar since the beginning of 2018 has exceeded 22 percent.

At one point the value of lira dropped below 4.90, but it managed to close the day at 4.84 again - partly because some private exchange offices stopped selling foreign currency to keep some in their hands and partly because the Istanbul Stock Exchange had changed its foreign currency assets to the Turkish Lira. Himmet Karadağ, the president of the stock exchange Borsa Istanbul, did not cite the amount money that was changed into liras, but he said the decision was taken in order to show trust in the Turkish Lira, to “boost the morale of the markets, and to show that the steep rise in the value of the U.S. dollar against the lira was not supported by economic indicators.”

Deputy Prime Minister Bekir Bozdağ vowed at around midday that those who think that they could make the ruling Justice and Development Party (AK Parti) lose in the early election on June 24 by “playing with the dollar” would be proven wrong.

The government suspects there are foreign - implying Western - factors behind “speculative moves” causing the fall of the lira. It believes that these circles do not want to see President Tayyip Erdoğan in power because he refuses to bow before Western powers.

This nationalist impulse has a certain influence on voters. In a recent poll by the Metropoll research company, 42 percent of respondents said they think the decline of the lira was a result of the “plots of foreign powers against Turkey,” while another 12 percent said they think the decline is due to international economic fluctuations. Some 35 percent said they think it is because of the government’s misguided policies and “structural problems.”

Few commentators have drawn attention to the coincidence that the recent steep decline came after President Erdoğan’s comments made during his visit to Britain on May 14-16, in which he said he was in favor political control over the Central Bank (especially regarding interest rates, which he views as the “mother of all evil”). Erdoğan frequently slams the Central Bank for resisting to his calls to lower interest rates in order to benefit the construction sector, which is the locomotive of the government’s economic program. The AK Parti group in parliament also recent made a last-minute move to give the government all authority to intervene in foreign currency operations.

Muharrem İnce, the presidential candidate for the main opposition Republican People’s Party (CHP), yesterday called on the government to put an end to speculations in the market that people’s foreign currency accounts held in banks would be transferred into Turkish Lira. İnce warned that the “truck is about to crash into the wall” unless something is done.

Meanwhile, Meral Akşener, the chairwomen and presidential candidate of the İYİ (Good) Party, questioned what the point is in trying to lower interest rates or stopping the decline of the lira now rather than waiting for the elections.

Yiğit Bulut, the chief economic adviser of President Erdoğan, rejected all criticisms in an interview on state broadcaster TRT, vowing that the government would “cut off the breath of speculators.”

Economy Minister Nihat Zeybekçi also called on “related institutions” to take action. His stance was not like an active member of the cabinet but rather in the mood of an objective, independent observer of developments.

The Central Bank did not do anything until the closing of the stock exchange. At around 19.00 local time the Monetary Policy Committe (PPK) of the Central Bank held an emergency meeting. The main interest rate was increased by 3 percent to 16.50. In a few minutes time the U.S dollar rate dropped to 4.57 per the lira. As of midnight it was 4.63. President Erdoğan said the currency move did not reflect the economic realities.Turks now hope tomorrow will be a better day.

* Updated at 11 p.m. local time.